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June Jobs Report: An Enticing Labor Market

As Hiring Continues, More Workers Enter the Labor Force

Jul 6, 2018

The U.S. labor market continues to impress. In June, employers added a better-than-expected 213,000 jobs, and the unemployment rate rose from 3.8 percent to 4.0 percent as more people entered the labor force. With recent revisions, the U.S. has now added an average of 215,000 jobs per month in 2018 versus 184,000 added per month during the same period last year. Annual wage growth, which was expected to rise slightly, remained level at 2.7 percent. While this was lower-than-expected, it takes some pressure off the Fed to raise rates faster than it would prefer.

Top Takeaways from the Report

The labor market continues to impress

Employers added a better-than-expected 213,000 jobs in June. Additionally, employment gains in April were revised up from 159,000 to 175,000, and job gains in May were revised up from 223,000 to 244,000. Combined, these revisions added 37,000 more jobs than originally reported. The labor market has now added jobs for 93 consecutive months – continuing the longest streak on record.

After matching the lowest-level since 1969 in May, the unemployment rate rose from 3.8 percent to 4.0 percent in June. Additionally, the underemployment rate rose from 7.6 percent to 7.8 percent. While on the surface these increases appear to point toward labor market weakness, the source of the rise indicates strength and hints that perhaps the improving job market is enticing more individuals to enter the workforce.

The labor pool may be deeper than we thought

The primary reason for the increase in the unemployment rate was the rise in the labor force participation rate. The rate, which measures those individuals working or looking for work, increased from 62.7 percent to 62.9 percent. As more individuals enter the labor force in search of a job, they count as unemployed until they are hired. This is a good sign that there are still people in the labor pool to draw from and may be one reason why wages haven’t risen as quickly as anticipated.

When breaking down the increase in the participation rate, it was primarily driven by young people and women entering the labor force. The participation rate for those between the ages of 16 and 19 rose from 34.7 percent to 35.1 percent, indicating a strong job market for high school students looking for a summer job. The labor force participation rate for women 16 years and older rose from 56.7 percent to 57.2 percent while the rate for men fell from 69.2 percent to 69.1 percent.

The Fed may move forward with two more rate hikes this year

The Fed raised the target federal funds rate to a range between 1.75 percent and 2 percent in mid-June. While this was highly-anticipated, Chairman Jerome Powell surprised many Fed observers with an announcement that the Fed plans to raise rates two more times in 2018. Recent minutes indicate that the Fed foresees a strengthening economy and growing inflationary pressures in the near future. The jobs report supports this view.

Continued trade spats could spill over into the broader economy

On Friday, U.S. tariffs against Chinese goods went into effect, and almost immediately China announced retaliatory tariffs. These actions reflect growing trade tensions and hostilities between the two nations that could spill over into the broader economy. The Fed mentioned rising trade tensions in their recent meeting as a possible threat to economic growth.

Growth by Select Industry

Employment in education and health services grew by 54,000 jobs over the last month. The majority of job creation came in the health care and social assistance sector, which added 34,700 jobs.

Professional and business services added 50,000 jobs in June. The sector has added 521,000 jobs over the past year.

The manufacturing sector continued to expand, adding 36,000 jobs in June. The sector has added jobs for 11 consecutive months and shows no sign of slowing down.

The Bottom Line – Despite fears over a potential trade war with China, the U.S. labor market continues to outperform expectations. Hiring remains robust and the unemployment rate continues to sit below levels suggestive of full employment. The rise in the labor force participation rate is a positive signal and it will be instructive to see if the trend can continue throughout the second-half of 2018.

The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

Content is offered for informational purposes only and should not be construed as tax, legal, financial or business advice. Please contact a professional about your specific needs and advice. Content may contain trademarks or trade names owned by parties who are not affiliated with ZB, N.A. Use of such marks does not imply any sponsorship by or affiliation with third parties, and ZB, N.A. does not claim any ownership of or make representations about products and services offered under or associated with such marks.

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